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July 9, 2012

BoE’s Tucker Will Testify on Barclays, Libor

Governorship of BoE at stake as deputy to tell his side

Paul Tucker, deputy governor of the Bank of England (BoE), was to appear before Parliament to give his version of events described in a memo written by Bob Diamond, former CEO of Barclays, as he hoped to hold on to his position as likely successor to Mervyn King as governor of the bank.

Bloomberg reported Monday that Tucker sought the opportunity to testify about a telephone call between himself and Diamond in October of 2008 that, according to Diamond’s memo, seemed to suggest that Tucker proposed Barclays lower its Libor submissions. So far the Libor rigging scandal has claimed the jobs of Diamond, Barclays chairman Marcus Agius and the bank’s chief operating officer, Jerry Del Missier, as well as resulting in heavy fines for Barclays.

“It’s the battle of the titans where the powerful banker is pointing the finger at the guy who’s heading to be the next governor,” Marcus Miller, a professor at the University of Warwick, said in the report. Miller, who was doing research at BoE at the time of the phone call in question, was quoted saying, “Tucker may get asked about whether he counseled lowballing, and whether Diamond’s version of events is believable. I think he can save himself.”

Parliament’s Treasury Committee was set to begin its questioning of Tucker in London on Monday afternoon. Not only the issue of the phone call is expected to be addressed, but also an earlier meeting at which the issue of Libor rates was raised. The minutes of that meeting, which took place in November of 2007, said in part, “Several group members thought that Libor fixings had been lower than actual traded interbank rates through the period of stress. Libor indices needed to be of the highest quality given their important role.”

Feeling in Europe is running high over the Libor rigging scandal. Germany’s markets regulator BaFin was said on Friday in a Reuters report to have launched a “special investigation” into Deutsche Bank’s possible complicity in the rate manipulation, according to sources with knowledge of the matter. A special investigation launched by the regulator itself carries more severity than an investigation requested by an outside party.

The ire rises higher; no less a person than Michel Barnier, the European Union (EU) commissioner in charge of financial reform, said through a spokesman on Monday that he would propose new regulations to criminalize benchmark manipulation—that of Libor and other important financial icons.

Barnier intends to amend proposed legislation already intended to tighten rules prohibiting insider trading and other such activities so that it also includes protections against benchmark manipulation for such industry standards as Libor.

Through his spokesman, Barnier said in the report, "We need to draw lessons from the Libor case. We intend to close the regulatory gap in our proposed market-abuse legislation by including the direct manipulation of market indexes such as Libor."

Britain’s own Serious Fraud Office also said on Friday that it was launching a criminal probe into Barclays’ activities surrounding Libor. And over the weekend, Business Secretary Vince Cable pushed Barclays to cut Diamond’s exit pay so that it could avoid “another outrage.”

In a BBC interview, Cable said, “There isn’t anything government can directly do about it, but in view of the shame that’s already been heaped on Barclays bank, I’d be very, very surprised if the chairman of the board were to allow another outrage.”

Other politicians weighed in as well, with Ed Balls, the Labour Party’s finance spokesman, saying in the report, “It is totally outrageous that somebody can stand aside because the board decides there’s a problem and then get a payout which is off the scale of anything normal people will earn in their lifetimes. How can that be?” He added that Barclays should “think really hard” about how it will address Diamond’s compensation package.

Ed Miliband, head of the Labour Party, went further, not just calling Diamond’s entire compensation since joining Barclays “totally out of whack” but also expected to propose in a Monday speech that Britain’s five largest banks be broken up. His office released remarks that indicate he will also propose a new code of conduct for bankers that will bar wrongdoers from ever working for British banks again.

Miliband also intends to pledge a restructuring that will include a British Investment Bank to provide credit for small businesses, as well as a new financial crime unit to be set up at the Serious Fraud Office.

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